Commercial real estate in Montreal

Good afternoon Quebec mortgage and real estate world. This week, I had an informal chat over coffee with Ron Wiebe from Ron Wiebe Realities. Ron's real estate agency specializes in commercial real estate and commercial leasing. As many of you know, commercial is an area that I am always interested in. Often, I feel I juggle residential and commercial real estate as many of clients own both types of property.

Ron and I launched into our chat by talking about new and seasoned commercial properties owners. I am always interested in servicing both types of clients especially folks that have a decent portfolio of residential properties and are looking to dive into commercial or their business needs them to expand to a commercial property. Ron shared with me that most people starting out a new business will typically lease some space before buying. Once the business becomes stabilized then you may be interested in finding a mortgage with similar payments as your lease. Ron says that "your first commercial building is the trick." He suggests that you plan 6-12 months in advance of buying. The most common mistakes is that people undervalue property and most do not realize that you may need 25-40% down payment on a commercial building. The type of building and revenue versus expenses will typically dictate amount of down payment required. Each bank and lender is slightly different.

Ron's main theme to keep in mind whether new or a veteran to commercial real estate is to "be pragmatic" and listen to your commercial real estate broker. If you trust your broker then listen to their advice and you may need to adjust your expectations. I agree with Ron that times change, meaning property values change as do lending rules. What you paid for years ago by square footage has changed. It is most likely inevitable. Having said that, Ron suggests that commercial market value will always be there. If permitting you should will always be looking to invest or operate your company somewhere you can call your own.

For more questions or comments about commercial financing feel free to contact me. Also, if you think of someone that might need my services please help make that introduction and let's start that conversation.

Harder to get a mortgage in 2015?

I wanted to wish everyone a happy 2015. I've been a bad boy as I need to get more consistent again with this blog. I must give credit to one client in particular that called me last week and mentioned that he reads my blog often. I was very touched by that comment. So this blog entry is dedicated to him. Thanks for the kick in the butt.

Okay now for the crux of this blog, is it harder to qualify for a mortgage in 2015? I am not trying to be evasive but I would say it depends:

1. If you are looking for a residential mortgage : it is not harder to qualify for a mortgage as the rules are generally the same. I would say that banks and virtual lenders are clamping down on poor credit and forcing self employed people to declare more money. The Federal Government is still closely monitoring the banks in this respect. We still have some wiggle room but this trend is forcing the  average consumer to "play more by the rules." I refer to this as common sense mortgage financing.

I find usually where the wheel fall off the wagon is due to personal issues such as divorce, illness, a death etc. I am optimistic for 2015. My two cents is stay proactive with your properties, credit, taxes, investments. Also, if a problem arises then deal with it immediately through a mortgage broker. Often times proper problem diagnosis, planning and execution is what is necessary. You need a power team consisting of the right: mortgage broker, financial planner, insurance broker, real estate broker, and accountant.

2. If you are looking for a commercial mortgage: I would say that commercial financing is more intricate. Each building is different and more and more banks are particular as to the type of properties they would like in their financing portfolio. Not everyone has a AAAA tenant from a large known franchise or brand. My two cents is just be sure you are approaching the right lender with your property or speak to a mortgage broker with commercial experience.

Also, often what slows financing or kills the deal with a lender is bad mortgage planning. Know your properties and know what your accountant enters into your T1 Generals. I worked on one commercial refinance where there were major dicrepencies on the rent roll and expenses. I try to pinpoint those issues before submitting to a lender but that is not always possible. For commercial mortgages, I am also very optimistic for 2015. I would say I have more commercial banks and lenders to work with than residential and these banks are hungry for business.

Montreal real estate and household incomes

Rob Carrick from the Globe & Mail is back at with an article entitled "Can you afford a home in these cities?" I love how Rob keeps it real and puts things in a comparative perspective. Rob again applies his Real Life Ratio indicator when looking at home affordability in various Canadian cities. According to him, "Montreal's a trouble spot, with actual household income well below the estimated income required to carry the average home." I would agree with him that "Falling prices would help some prospective home buyers, but its not a big factor as you'd expect." I also agree that if the Real Life Ratio, i.e. the common sense calculation for owning a home doesn't work then it's okay to rent or save on building a large down payment.

Canadian household debt

Happy rainy Monday Montrealers. Today, an article in the Montreal Gazette caught my eye entailed "Household debt worries ease as mortgage borrowing slows in May: RBC." The RBC states that Canadian homeowners have been slowing down on the amount of mortgage debt that is assumed. Yes debt-load and market values are critical indices in Canada and I have no doubt that we're taking on less debt but I don't think it's because we are smarter consumers.

Are we managing our household debts better?
Picture: Huffington Post & Alamy Photo 

Perhaps Canadian homeowners are "hitting a wall" when it comes to assuming more debt and mortgages. This is an income issue. I am sure that if wages went up then Canadians would most likely assume more debt as well.

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Do you have a green mortgage and a green home?

Hey everyone, hope Father's Day is off to a good start on this sunny day in Montreal. Today, I got inspired to write about having a green home. Often we all talk about being green by participating in our city's recycling and composting programs. I think we are all pretty green minded but post-recycling and car pooling we're not sure what next.

Personally, I don't think we do enough for the environment nor are living in a sustainable manner. As home owners or future home owners there are three ways you can help your pocket and help the environment, by: either buying an energy efficient home, making energy efficient renovations to your new home or renovate your existing home.

When buying an energy efficient home (or making energy efficient saving renovations), should you meet certain criteria both CMHC and Genworth will refund 10% of your insurance premium. On a mortgage of $200,000 you would save approximately $500 on your premium. According to the Quebec Government, by making these changes you'd save approximately 20% on your energy costs. Furthermore, through the Quebec Government's Novoclimat 2.0 Program you'd receive an additional $1000 in financial assistance. Is saving $1500 upfront and 20% on your energy bills enough? Let's take this discussion a bit further...

As many of your know I like Mike Holmes and the innovative ideas he shares. If you read his website you will see lots of green home ideas, which includes: roofing, heating and cooling, alternative lighting, power, and improving the building envelope. The aspect I find most interesting is water use. Mike talks about greywater, which is "used water that comes from sinks and drains, as well as reclaimed rainwater collected from a home’s roofs." The greywater is then held, filtered and sent back into the house for re-use. The water cannot be used for drinking, showering or bathing but definitely useful for watering the lawn, laundry, washing your car, and flushing toilets.

Mike states there are no Federal or Provincial building guidelines for greywater systems. In addition "Each individual municipality accepts or rejects proposed greywater systems that homeowners might want to install."

I am glad that Mike and people like him are sharing these ideas. I just wish our governments were a bit more ahead of the times by adopting more green building codes and help bring these topics into mainstream discussion.

A reverse what? A reverse who? A reverse mortgage

Afternoon #mortgageland, it's a drizzly day in Montreal but still a great day regardless. On 3 June 2014, Montreal's CJAD 800 AM hosted an interview about reserve mortgages with Kelley Keehn (personal finance expert and speaker). At the time, I tweeted through @cdnmortgages, that I would write an article about that conversation hence voila!

A reverse mortgage is designed for seniors. To qualify you must be 55 and older. Ideally by 55, you have little or no mortgage on your home. Everyone's desire is to have decent quality of life especially in the later stages of life and sometimes that is challenging with shrinking pensions. A reverse mortgage can unlock up to 40% (depending where you home is located) of the value of your home. These funds can be used at your discretion for: travel, pay debts, help others, renovate your home. I agree with Kelley that a reverse mortgage should be a last resort option as it is an expensive option. 

A reverse mortgage is payment free because the interest is accrued and added to your mortgage balance over time. When you pass away or should sell your home then your mortgage shall be repaid back to Chip (the sole reserve mortgage company in Canada). Be aware this option does chew through the equity in your home. There are alternative options to a reverse mortgage. For instance, it can make more sense to take on a mortgage or line of credit up and put aside some proceeds to cover your payments over next few years. It's all depends on your needs, the costs and comfort level. 

Reviewing article: "The bank said no - now what?"

Good afternoon Montreal Real Estate world. Today, I am reviewing an article that caught my eye in the National Post entitled "The bank said no - now what?" Susan Smith does a great job painting the current mortgage landscape and impact of the post-2008 Federal Government rule changes. However, I'd add a couple things. Susan Smith discusses how the rules changes have impacted certain consumers, I shall solely focus on the self-employed.

The Self Employed: Okay, here is the unplugged truth for anyone self employed. Is it really harder for self employed people to qualify for a mortgage? I'd say it depends on your specific circumstances (declaring income and credit quality are the usual suspects). According to Susan, "The government...tightened requirements for the self-employed, requiring independent validation of income statements." In other words, the Federal Government is forcing the self employed to declare more income on their income taxes. It is much harder to get a mortgage with an "A-lender" under the self employed program without declaring anything reasonable. For example, the most common insured self-employed program would be Genworth's Alt-A program. They require strong credit history, a +680 score, incomes taxes to be filed and up-to-date for 2 years, and no income tax arrears owed. Generally, when applying for a mortgage your income declared on line 150 of your notice of assessment can be multiplied by 2-2.5 of the stated income. Usually, this type of financing referred as "common sense financing." In other words, say you are a plumber or electrician declaring $45,000 personally hence we may be able to an auto-declared income under this program at $90,000 in order to qualify for your mortgage. In such cases your mortgage would incur an extra mortgage insurance premium.

As the article points out, there are alternative lender options like Home Trust or Equitable Bank that exist. Using an alternative bank the interest rate can be between approximately between 3.89-6.99% depending on the term. Rates here as understandably based on risk. The "country’s 2.75 million self-employed workers – a group that, according to Statistics Canada, has a higher median net worth than paid employees." Self employed individuals are made out to sound more risky compared than salaried individuals. The self employed must declare more income whether we like it or not. Sometimes it makes sense to work with an alternative lender for 1-3 years but with a mortgage plan you can switch to an "A -lender" thereafter depending on your circumstances. 

The article mentions private lender, I shall write a separate blog entry on that subject.